Aqua Capital buys second input distribution business in $100m move

Shortly after the Brazil-based firm sealed the fourth investment from its second fund, founding partner Sebastian Popik explains how it seeks to tap a sector that's finally attracting longer-duration capital.

Aqua Capital has spent more than $100 million to coordinate the operations of two Brazilian input distribution and grain handling businesses in its portfolio, according to the firm’s founder.

Managing partner Sebastian Popik told Agri Investor that in August, Aqua acquired Agro 100, which is based in Southern Brazil and offers crop chemicals, fertilizers, micronutrients and seeds. Capital for the investment came from Aqua’s Agribusiness Fund II, which surpassed its initial target of $350 million before closing on $370 million in June.

The vehicle targets returns of up to 20 percent through a strategy focused on inputs and mid-market agribusinesses. While its remit covers Argentina, Peru, Chile and Colombia, Fund II is largely focused on Brazil, where Aqua is based.

In July 2016, Aqua used the vehicle to purchase a majority stake in Rural Brazil, an inputs and grain distribution business similar to Agro 100 located in Central Brazil.

Popik explained that, while the input production sub-sector has consolidated gradually over past decades, it is only in the years since 2012 that Brazil’s input distribution market has begun to attract investors, including Japanese trading houses and Chinese corporates.

“This is a sector that has started to undergo consolidation,” Popik said. “It’s still very fragmented so nobody has double-digit market share. Geographically, Brazil is huge, so we think this is a process that has just started and will evolve over time.”

‘Faster than anticipated’

Agro 100 and Rural Brazil are currently continuing to operate as separate entities because they are located in different parts of Brazil, each with their own set of organic growth opportunities to pursue, according to Popik. Combined revenue for the two businesses in 2017 was $700 million.

“This is more of a growth story than a buyout that’s focused on cutting costs. There’s a lot of inherent growth here,” Popik said. “We could potentially consolidate, but that’s not something that’s on the plate right now. ”

Aqua’s efforts to coordinate operations between Agro 100 and Rural Brazil have included increased auditing and the introduction of risk management procedures designed to ease access to not just commercial loans, but long-term capital for future expansions, Popik explained.

“This is part of an evolving agenda, but it’s happening. As a consequence, we are having longer-duration, cheaper capital gradually coming in. It’s happening a bit faster than we anticipated.”